The new Commercial Companies Law (CCL) in Oman was enacted by the Royal Decree Number 18 of 2019, (the Law) and published in the official gazette on 17 February 2019. The Law came into effect within 60 days of its publication, being, 17 April 2019 and repeals the previous Commercial Companies Law in Oman (Law Number 4 of 1974, as amended). The current Law is seen as one of the modern-day companies' enactment and has attempted to do away with complex and cumbersome governance and other related procedures. For the first time, the Law also paves way for a natural/legal person to set up a single person company and lays down extensive set of provisions dealing with manager's liability and that of the corporate shareholders. Article 3 of the new CCL defines a commercial entity as a ‘for profit' business established by two or more persons. In line with Article 13 of the Law, investors can form a company provided that their principal place of business is in the mainland. With respect to free zones, it is stated that such free zone entities shall be governed by the regulations of respective free zone as approved by the Council of Ministers. In the absence of any such legislation governing the free zone companies, it is safe to say that such a company shall be governed by the CCL. Companies that are fully owned by nationals of Oman shall enjoy all the rights that are limited by the Companies law of Oman. In the previous law, commercial companies could adopt any of the 6 forms of a company including a general partnership, limited partnership, joint venture, joint stock company and limited liability company. The new Law provides for a seventh form, a one-person company under Article 4 of theLaw. In this Article, we aim to discuss the changes brought about in mainly three forms of companies which are joint stock companies, limited liability companies and joint venture companies.
Joint stock companies
Significant changes have been introduced in joint stock companies (JSC) in the Oman's CCL and have been summarized and discussed below:
- Uneven Number of Members - In the old law, the board of members in a JSC had to consist of a maximum of 12 members, whereas under the new CCL, the board has to consist of an odd number of members and the maximum number of members would be 11. In order to comply with the provisions under the new law, an existing company with an even number of board of directors will have to either remove or add new directors to get the total number of such director's equivalent to an odd number of members (Article 179).
- Quorum of Board Meetings – A quorum of one half of the members (50%) was needed to pass any decision which implies a relative majority was needed under the old law. This has been increased to two-thirds of members required to be present in a meeting under the new CCL. Resolutions in such meetings shall be approved by an absolute majority unless the articles of association provide for a higher percentage (Article 192). However, what would constitute an ‘absolute majority' has not been defined on which further guidance is needed by the law.
- Minutes of Board Meetings- The minutes of the board meetings shall be prepared by the secretary of board of directors and shall be signed by the secretary and all the members who attended the meeting. An objection by any member towards any resolution passed shall be recorded in the minutes and the signatories of these minutes shall be accountable for the data laid down in the minutes of the meeting (Article 194)
- Board Members Resignation- If any board member fails to attend three consecutive board meetings without a reasonable and valid excuse, then such a person shall be considered to have ‘resigned as a matter of law' (Article 195). Hence, a board member will need a valid excuse that will be accepted by the rest of the members of the board to skip three consecutive meetings. Failure of attending three back to back meetings shall deem fatal for a member, as the company shall imply that such a person has resigned from the company.
- Means of Communication in Meeting- A maximum of two board meetings could he held via video conferencing in each financial year under the old law. Whereas under the new CCL, no such restriction has been imposed on the number of meetings that can be held via video conferencing. Article 191 of CCL mandates that the board of directors may collectively decide to convene meetings through the use of correct means of communications as they deem necessary. Any verbal or visual communication can be facilitated between members of the company not present in one place, as long as the secretary of board is able to identify and record such discussions.
- General Meeting - Earlier shareholders were required to meet own a minimum of 25% shares in a company to call for a general meeting. The same has been reduced to 10% under the new law (Article 164), thus, providing shareholders with increased protection.
- Agenda of General Meeting - In the old law, shareholders owning 10% of the company's shares could request to include an agenda item for a general meeting, whereas, under the new law this has been reduced to 5% (Article 165).
- Minutes of General Meeting – The minutes of a general meeting were required to be signed within 15 days from the date of the commencement of meeting pursuant to the old law. Whereas, under the new CCL, board minutes need to be signed and lodged by all board members within 7 calendar days from the date of the commencement of the meeting. However, the new law does not clarify the implication of failure to obtain such signatures of board members and further guidance is required on the same (Article 167)
- Chairman of General Meeting – The chairman of the board of directors shall manage the general meetings. The absence of such a chairman shall put the deputy of such a chairman in charge and further the absence of the deputy will put the person appointed by the board in charge. If the board fails to appoint such a person, then the auditor shall have the authority to appoint a person and put him in charge of the general meeting (Article 171).
- Quorum of General Meetings – A general meeting shall be attended by shareholders or by proxies (proxy has to be in writing) with a minimum ownership of at least one half of the shares in the company. The failure to establish such a quorum shall lead to the adjournment of such a meeting and the same shall be reconvened any time within 7 days of such adjournment. The second meeting shall be valid irrespective of the number of shares owned by persons attending the meeting and all resolutions passed shall be adopted by a simple majority of the shares represented in the meeting (Article 173)
- Increased Shareholder Protection- Pursuant to Article 148, the shareholder's interests are protected by providing them increased protection in a JSC. A regulator can be appointed to take care of shareholders if the company acts against the interests of the shareholders or creditors. Following a warning, the regulator will be entitled to eliminate any work by the company causing any damage to any of the shareholders or creditors of the company. A board observer can be appointed to overlook the meetings of the company and can obligate the chairman to convene a general meeting for taking any necessary action required to remedy any risks arising against the shareholders. Such a regulator can also dissolve the board and instead appoint a temporary board to overlook matters of the company. The regulator will hold full authority to prohibit the company from effecting any activity causing danger to the shareholders of the company.
- Voting Rights for Articles of Association of Company- Article 122 of CCL provides that the Articles of Association of a JSC may establish privileges, rights and limitations for any class of shares of the company and such information can be amended provided that a minimum majority of two-thirds of the owners of such class of shares, vote for such an amendment at a general meeting.
- Voting Rights for Securities and Bonds - Pursuant to Article 158 of CCL, a general meeting in a JSC can be convened for the holders of securities and bonds shall require a voting majority of two-thirds of such holders present at the meeting. Such a meeting shall be convened if holders representing at least two-thirds of the securities or bonds attend such a meeting, failing which holders representing one-third of the securities and bonds shall hold a second general meeting within 30 days of the commencement of the first general meeting.
Originally published STA Law Firm, May 2020
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